Rub offshore lies in rising $A

Australian companies with business in Europe have largely shrugged off potential austerity measures across the Continent but may still feel a material impact come reporting season.

The ratings downgrade of Greece, Spain and Portugal this week forced some countries to look at their spending, and Greece in particular has had a fine-tooth comb run through its expenses.

But the likes of Amcor, Westfield and Computershare, which all have material operations in Europe, are still in positive territory for the year to date, despite the concerns which dragged European sharemarkets lower this week.

Analysts from Deutsche Bank have warned that the Australian dollar’s appreciation against the euro could bring downgrades for companies lsuch as
Amcor
.

While Amcor’s products are mostly defensive in nature and could be expected to ride out the austerity measures, Deutsche Bank analyst Mark Wilson has pointed to the risk of a rising currency.

“We estimate Amcor’s currency exposure, largely representing the translation of offshore earnings, will increase post the Alcan transaction with every 1¢ movement in the euro impacting net profit after tax by $4.5 million," Mr Wilson said in a report.

Mr Wilson forecast Amcor would announce an annual NPAT of $425 million this year, but that was based on the $A worth €66¢.

On Thursday afternoon it was trading close to a record high of about €70¢.

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“I wouldn’t be expecting any rapid change in sentiment, especially given what’s happened with Greece and Spain," Mr Nathan said.

“It’s a fairly big issue and I don’t expect it to be fully resolved any time too soon."

Fund managers, armed with a stronger $A and expectations of an ongoing economic recovery, have recently turned their attention to the United States, where 79.4 per cent of companies reporting in March topped analyst forecasts, according to Bloomberg.

Mr Nathan said structural differences between the US and Europe meant the US was better placed to make a quick recovery.

“The US has a much more flexible workforce and work practices," he said.

“While ultimately it [Europe] will turn around and be a beneficiary of renewed interest, I think the US will lead that by some time."

But Europe’s woes have failed to dampen Amcor, which reported 37 per cent of sales, worth about $2.6 billion, were in western Europe last financial year.

Its shares were up 4.5 per cent for the year in Thursday afternoon’s trade, at $6.51, which included a 16¢ spike for the day.

Smaller companies actively expanding into Europe, such as pizza maker Domino’s and appliance maker and distributor Breville, have also shown few side-effects from Europe’s wobbles.

Domino’s, which opened 20 stores in Europe in the seven months to January and acquired 15 stores via Belgium Pizza company, has shown no signs of slowing down.

Domino
’s shares were 1¢ lower yesterday afternoon at $5.57 – still 3.15 per cent ahead for the year.

However, Domino’s proved in Australia last year that economic turmoil could be good for its business.

Likewise, pathology company
Sonic Healthcare
has ramped up its interest in Europe following tougher conditions in the Australian market.

Sonic shares were up 20¢ or 1.45 per cent for the session at $13.97 in trade yesterday, but down 9.1 per cent for 2010.

QBE Insurance
is another company with significant European earnings.

Its shares were down 17.1 per cent for the year in yesterday’s trade, at $21.22.